10-Q 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) Of The Securities Exchange Act of 1934 For Quarter Ended September 30, 2000 OR [ ] Transition Report Pursuant to Section 13 or 15(d) Of the Securities Exchange Act of 1934 For Quarter Ended September 30, 2000 Commission File Number 001-12217 MISSISSIPPI CHEMICAL CORPORATION Organized in the State of Mississippi Tax Identification No. 64-0292638 3622 Highway 49 East, Yazoo City, Mississippi 39194 Telephone No. 662+746-4131 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ x ] No [ ] The number of shares outstanding of each of the issuer's classes of common stock, as of September 30, 2000. Class Number of Shares -------- ---------------- Common Stock, $0.01 par value 26,131,917 MISSISSIPPI CHEMICAL CORPORATION AND SUBSIDIARIES INDEX Page Number ------ PART I. FINANCIAL INFORMATION: Item 1. Financial Statements Consolidated Statements of Income 3 Three months ended September 30, 2000 and 1999 Consolidated Balance Sheets 4 - 5 September 30, 2000 and June 30, 2000 Consolidated Statements of Shareholders' Equity 6 Fiscal Year Ended June 30, 2000 and Three months ended September 30, 2000 Consolidated Statements of Cash Flows 7 Three months ended September 30, 2000 and 1999 Notes to Consolidated Financial Statements 8 - 15 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 16 - 21 Item 3. Quantitative and Qualitative Disclosure About Market Risk 22 PART II. OTHER INFORMATION: Item 6. Exhibits and Reports on Form 8-K 23 Signatures 23 PART>I. FINANCIAL INFORMATION Item 1. Financial Statements. MISSISSIPPI CHEMICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three months ended September 30, --------------------- 2000 1999 --------- --------- (In thousands, except per share data) Revenues: Net sales $120,053 $ 96,998 Operating expenses: Cost of products sold 122,561 93,445 Selling, general and administrative 8,773 8,612 Other 3,436 2,540 -------- -------- 134,770 104,597 -------- -------- Operating loss (14,717) (7,599) Other (expense) income: Interest, net (7,159) (6,027) Other 1,459 635 -------- -------- Loss before income taxes (20,417) (12,991) Income tax benefit (8,171) (7,439) -------- -------- Net loss $(12,246) $ (5,552) ======== ======== Loss per share - basic (see Note 2) $ (0.47) $ (0.21) ======== ======== Loss per share - diluted (see Note 2) $ (0.47) $ (0.21) ======== ========
[FN] The accompanying notes are an integral part of these consolidated financial statements. MISSISSIPPI CHEMICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) ASSETS PAGE> September 30, June 30, 2000 2000 --------- --------- (In thousands, except per share data) Current assets: Cash and cash equivalents $ 2,041 $ 2,190 Accounts receivable, net 43,630 62,080 Inventories: Finished products 31,283 28,015 Raw materials and supplies 5,896 7,180 Replacement parts 36,379 37,322 -------- -------- Total inventories 73,558 72,517 Income tax receivable 10,077 10,080 Insurance receivable - 3,094 Prepaid expenses and other current assets 8,871 9,526 Deferred income taxes 393 922 -------- -------- Total current assets 138,570 160,409 Investments in affiliates 92,140 89,508 Property held for sale 9,386 600 Other assets 8,835 11,288 Property, plant and equipment, at cost 838,088 846,868 less accumulated depreciation, depletion and amortization (406,891) (401,014) -------- -------- Net property, plant and equipment 431,197 445,854 Goodwill, net of accumulated amortization 166,034 167,179 -------- -------- $846,162 $874,838 ======== ========
[FN] The accompanying notes are an integral part of these consolidated financial statements. MISSISSIPPI CHEMICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued) LIABILITIES AND SHAREHOLDERS' EQUITY September 30, June 30, 2000 2000 ------------ --------- (In thousands, except per share data) Current liabilities: Accounts payable $ 46,964 $ 54,661 Accrued liabilities 16,251 10,893 -------- -------- Total current liabilities 63,215 65,554 Long-term debt 322,513 330,307 Other long-term liabilities and deferred credits 10,719 9,995 Deferred income taxes 65,464 73,235 Shareholders' equity: Common stock ($.01 par; authorized 100,000 shares; issued 27,976) 280 280 Additional paid-in capital 305,901 305,901 Retained earnings 101,966 114,996 Accumulated other comprehensive income 5,683 4,149 Treasury stock, at cost (1,844 shares) (29,579) (29,579) -------- -------- 384,251 395,747 -------- -------- $846,162 $874,838 ======== ========
[FN] The accompanying notes are an integral part of these consolidated financial statements. MISSISSIPPI CHEMICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY SEPTEMBER 30, 2000 (Unaudited) Accumulated Additional Other Common Paid-In Retained Comprehensive Treasury Stock Capital Earnings Income Stock Total -------- -------- ---------- ------------ -------- -------- (In thousands) Balances, July 1, 1999 $ 280 $305,901 $143,626 $ 1,857 $(29,579) $422,085 Comprehensive loss: Net loss - - (23,664) - - (23,664) Net unrealized gain on hedges, net of tax - - - 2,292 - 2,292 -------- -------- -------- -------- -------- -------- Comprehensive loss - - (23,664) 2,292 - (21,372) Cash dividends paid ($0.19 per share) - - (4,966) - - (4,966) -------- -------- -------- -------- -------- -------- Balances, June 30, 2000 280 305,901 114,996 4,149 (29,579) 395,747 Comprehensive loss: Net loss - - (12,246) - - (12,246) Net unrealized gain on hedges, net of tax - - - 1,534 - 1,534 -------- -------- -------- -------- -------- -------- Comprehensive loss - - (12,246) 1,534 - (10,712) Cash dividends paid ($0.03 per share) - - (784) - - (784) -------- -------- -------- -------- -------- -------- Balances, September 30, 2000 $ 280 $305,901 $101,966 $ 5,683 $(29,579) $384,251 ======== ======== ======== ======== ======== ========
[FN] The accompanying notes are an integral part of these consolidated financial statements. MISSISSIPPI CHEMICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three months ended September 30, 2000 1999 ------------ ------------ (In thousands) Cash flows from operating activities: Net loss $(12,246) $ (5,552) Reconciliation of net loss to net cash provided by (used in) operating activities: Net change in operating assets and liabilities 17,641 (16,570) Depreciation, depletion and amortization 12,038 11,649 Deferred income taxes (4,761) 3,300 Equity earnings in unconsolidated affiliates (2,723) (5,896) Other 330 (1,537) -------- --------- Net cash provided by (used in) operating activities 10,279 (14,606) -------- --------- Cash flows from investing activities: Purchases of property, plant and equipment (4,495) (4,604) Other 2,658 4,800 -------- --------- Net cash (used in) provided by investing activities (1,837) 196 -------- --------- Cash flows from financing activities: Debt proceeds 88,521 108,900 Debt payments (96,328) (91,800) Cash dividends paid (784) (2,614) -------- --------- Net cash (used in) provided by financing activities (8,591) 14,486 -------- --------- Net (decrease) increase in cash and cash equivalents (149) 76 Cash and cash equivalents - beginning of period 2,190 1,648 -------- --------- Cash and cash equivalents - end of period $ 2,041 $ 1,724 ======== =========
[FN] The accompanying notes are an integral part of these consolidated financial statements. MISSISSIPPI CHEMICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - INTERIM FINANCIAL STATEMENTS The accompanying consolidated financial statements have been prepared by us without audit, and include Mississippi Chemical Corporation, its subsidiaries and affiliates. In our opinion, the financial statements reflect all adjustments necessary to present fairly our results of operations for the three-month periods ended September 30, 2000 and 1999, our financial position at September 30, 2000 and June 30, 2000, our cash flows for the three months ended September 30, 2000 and 1999, and our consolidated statements of shareholders' equity as of September 30, 2000. We believe the adjustments are of a normal recurring nature which are necessary for a fair presentation of our financial position and results of operations for the interim periods. We have reclassified certain prior-year information to conform with the current year's presentation. Certain notes and other information have been condensed or omitted in our interim financial statements presented in this quarterly report on Form 10-Q. Therefore, the financial statements should be read in conjunction with our 2000 annual report on Form 10-K and our consolidated financial statements and notes thereto included in our June 30, 2000, audited financial statements. Our business is seasonal; therefore, the results of operations for the periods ended September 30, 2000, are not necessarily indicative of the operating results for the full fiscal year. NOTE 2 - EARNINGS PER SHARE The number of shares used in our basic and diluted earnings per share computation are as follows: Three months ended September 30, ------------------- 2000 1999 ------- -------- (In thousands) Weighted average common shares outstanding, net of treasury shares, for basic earnings per share 26,132 26,132 Common stock equivalents for employee stock options - - ------ ------ Weighted average common shares outstanding for diluted earnings per share 26,132 26,132 ====== ======
Options outstanding were not included in our computations of diluted earnings per share for the three-month periods ended September 30, 2000 and 1999, because they were antidilutive. In July 2000, our Board of Directors declared a regular quarterly cash dividend of $0.03 per common share for the three-month period ending June 30, 2000. This dividend was paid on August 25, 2000, to holders of record on August 11, 2000. Due to current industry conditions and results for the current quarter, our Board of Directors voted to eliminate the $0.03 per common share quarterly dividend effective for the quarter ended September 30, 2000. NOTE 3 - SEGMENT INFORMATION Our reportable operating segments, nitrogen, phosphate and potash, are strategic business units that offer different products. They are managed separately because each business unit requires different technology and marketing strategies. Our nitrogen segment produces ammonia, ammonium nitrate, urea, nitrogen solutions and nitric acid. We distribute these products to fertilizer dealers and distributors, and industrial users. Our phosphate segment produces diammonium phosphate fertilizer (commonly referred to as "DAP") that is marketed to agricultural users primarily in international markets through a separate export association. Our potash segment mines and produces granular and standard potash products and distributes them to agricultural and industrial users. Below is our segment information for the three-month periods ended September 30, 2000 and 1999. The Other caption includes corporate and consolidating eliminations. Three months ended September 30, 2000 ------------------------------------------------------------------------------- (In thousands) Nitrogen Phosphate Potash Other Total ------------------------------------------------------------------------------- Net sales - external customers $71,325 $ 29,823 $ 18,905 $ - $120,053 Net sales - intersegment 7,570 15 - (7,585) - Operating loss (9,863) (1,907) (2,425) (522) (14,717) Depreciation, depletion and amortization 7,947 1,505 1,607 979 12,038 Capital expenditures 1,877 293 2,320 5 4,495 Three months ended September 30, 1999 ------------------------------------------------------------------------------- (In thousands) Nitrogen Phosphate Potash Other Total ------------------------------------------------------------------------------- Net sales - external customers $ 42,276 $ 35,783 $ 18,939 $ - $ 96,998 Net sales - intersegment 5,708 16 - (5,724) - Operating (loss) income (9,211) 2,307 45 (740) (7,599) Depreciation, depletion and amortization 7,693 1,500 1,519 937 11,649 Capital expenditures 1,421 864 1,928 391 4,604
NOTE 4 - ACCUMULATED OTHER COMPREHENSIVE INCOME On July 1, 1998, we adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which establishes standards for reporting comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. Comprehensive income is the total of net income and all other non- owner changes in equity. The components of comprehensive income that relate to us are net income or loss and unrealized gains or losses on our natural gas futures contracts and, as permitted under the provisions of SFAS No. 130, are presented in the Consolidated Statements of Shareholders' Equity. Prior-year information has been restated to conform to the requirements of SFAS No. 130. The changes in the components of accumulated other comprehensive income during the three months ended September 30, 2000, are included below. Tax Before-Tax (Expense) Net-of-Tax Amount Benefit Amount ---------------------------------- Net unrealized gain on natural gas futures contracts: Balances, June 30, 2000 $ 6,631 $(2,482) $ 4,149 Net unrealized gain arising during period 7,636 (2,868) 4,768 Less: reclassification adjustment for net gains realized in net income (5,174) 1,940 (3,234) ------- ------- ------- Net unrealized gain 2,462 (928) 1,534 ------- ------- ------- Balances, September 30, 2000 $ 9,093 $(3,410) $ 5,683 ======= ======= =======
NOTE 5 - GUARANTOR SUBSIDIARIES Payment obligations under our 7.25% Senior Notes, due November 15, 2017, issued pursuant to that certain indenture, dated as of November 25, 1997, are fully and unconditionally guaranteed on a joint and several basis by Mississippi Nitrogen, Inc., and MissChem Nitrogen, L.L.C. (the "Guarantor Subsidiaries"), our wholly owned direct subsidiary and our wholly owned indirect subsidiary, respectively. Condensed consolidating financial information regarding the parent company, Guarantor Subsidiaries and non- guarantor subsidiaries for September 30, 2000 and 1999 is presented below for purposes of complying with the reporting requirements of the Guarantor Subsidiaries. Separate financial statements of the Guarantor Subsidiaries are not presented because we do not believe that separate financial statements are material to investors. CONDENSED CONSOLIDATING STATEMENT OF INCOME Three months ended September 30, 2000 -------------------------------------------------------------------------------- Parent Guarantor Non-Guarantor (In thousands) Company Subsidiaries Subsidiaries Eliminations Consolidated -------------------------------------------------------------------------------- Revenues: Net sales $ - $ 33,883 $144,813 $(58,643) $120,053 Operating expenses: Cost of products sold - 41,137 140,543 (59,119) 122,561 Selling, general and administrative 513 1,473 6,787 - 8,773 Other - 1,600 1,836 - 3,436 ------- ------- -------- --------- -------- 513 44,210 149,166 (59,119) 134,770 ------- ------- -------- --------- -------- Operating loss (513) (10,327) (4,353) 476 (14,717) Other (expense) income: Interest, net (7,574) (3,488) 3,903 - (7,159) Other (5,102) 3,149 209 3,203 1,459 ------- --------- --------- --------- -------- Loss before income taxes (13,189) (10,666) (241) 3,679 (20,417) Income tax benefit (943) (2,060) (4,534) (634) (8,171) -------- --------- --------- --------- -------- Net (loss) income $(12,246) $ (8,606) $ 4,293 $ 4,313 $(12,246) ======== ========= ========= ========= ========
CONDENSED CONSOLIDATING STATEMENT OF INCOME Three months ended September 30, 1999 ------------------------------------------------------------------------------- Parent Guarantor Non-Guarantor (In thousands) Company Subsidiaries Subsidiaries Eliminations Consolidated ------------------------------------------------------------------------------- Revenues: Net sales $ - $ 29,735 $ 98,216 $(30,953) $ 96,998 Operating expenses: Cost of products sold - 35,740 96,367 (38,662) 93,445 Selling, general and administrative 602 1,059 6,951 - 8,612 Other - - 2,540 - 2,540 ------- -------- --------- ---------- --------- 602 36,799 105,858 (38,662) 104,597 Operating loss (602) (7,064) (7,642) 7,709 (7,599) Other (expense) income: Interest, net (5,897) (2,634) 2,504 - (6,027) Other 255 (3,220) 299 3,301 635 -------- -------- -------- --------- -------- Loss before income taxes (6,244) (12,918) (4,839) 11,010 (12,991) Income tax benefit (692) (4,909) (1,838) - (7,439) -------- -------- -------- --------- -------- Net loss $ (5,552) $ (8,009) $ (3,001) $ 11,010 $ (5,552) ======== ======== ======== ========= ========
CONDENSED CONSOLIDATING BALANCE SHEET Assets September 30, 2000 ------------------------------------------------------------------------------- Parent Guarantor Non-Guarantor (In thousands) Company Subsidiaries Subsidiaries Eliminations Consolidated ------------------------------------------------------------------------------- Current assets: Cash and cash equivalents $ 1,956 $ 17 $ 68 $ - $ 2,041 Receivables, net 10,801 11,723 61,640 (30,457) 53,707 Inventories - 18,425 55,053 80 73,558 Prepaid expenses and other current assets 7,523 1,494 9,216 (8,969) 9,264 -------- --------- --------- ---------- --------- Total current assets 20,280 31,659 125,977 (39,346) 138,570 Investments in affiliates 692,550 353,680 75,237 (1,029,327) 92,140 Property held for sale 1,605 - 7,781 - 9,386 Other assets 136,958 - 273,846 (401,969) 8,835 PP&E, net 10,394 147,034 273,769 - 431,197 Goodwill, net - - 166,034 - 166,034 -------- --------- --------- ------------ -------- Total assets $861,787 $ 532,373 $ 922,644 $ (1,470,642) $846,162 ======== ========= ========= ============ ======== Liabilities and Shareholders' Equity ------------------------------------------------------------------------------ Current liabilities: Accounts payable $ 21,383 $ 12,677 $ 54,145 $ (41,241) $ 46,964 Accrued liabilities 12,304 3,545 7,150 (6,748) 16,251 Other current liabilities 2,220 - 4 (2,224) - -------- --------- --------- ------------- --------- Total current liabilities 35,907 16,222 61,299 (50,213) 63,215 Long-term debt 439,870 141,601 124,219 (383,177) 322,513 Other long-term liabilities and deferred credits 1,759 31,988 61,293 (18,857) 76,183 Shareholders' equity: Common stock 280 1 58,941 (58,942) 280 Additional paid-in capital 305,901 324,715 543,649 (868,364) 305,901 Retained earnings 101,966 17,846 73,243 (91,089) 101,966 Accumulated other comprehensive income 5,683 - - - 5,683 Treasury stock, at cost (29,579) - - - (29,579) -------- --------- --------- ----------- -------- Total shareholders' equity 384,251 342,562 675,833 (1,018,395) 384,251 -------- --------- --------- ----------- -------- Total lia- bilities and shareholders' equity $861,787 $532,373 $ 922,644 $(1,470,642) $846,162 ======== ======== ========= =========== ========
CONDENSED CONSOLIDATING BALANCE SHEET Assets June 30, 2000 -------------------------------------------------------------------------------- Parent Guarantor Non-Guarantor (In thousands) Company Subsidiaries Subsidiaries Eliminations Consolidated -------------------------------------------------------------------------------- Current assets: Cash and cash equivalents $ 2,085 $ 17 $ 88 $ - $ 2,190 Receivables, net 1,556 11,139 93,407 (30,848) 75,254 Inventories - 22,858 50,056 (397) 72,517 Prepaid expenses and other current assets 6,622 1,321 6,360 (3,855) 10,448 -------- -------- -------- ------------ --------- Total current assets 10,263 35,335 149,911 (35,100) 160,409 Investments in affiliates 700,062 350,635 72,776 (1,033,965) 89,508 Property held for sale - - 600 - 600 Other assets 134,530 5 251,667 (374,914) 11,288 PP&E, net 12,296 148,828 284,730 - 445,854 Goodwill, net - - 167,179 - 167,179 -------- -------- --------- ------------ --------- Total assets $857,151 $534,803 $926,863 $(1,443,979) $ 874,838 ======== ======== ======== =========== ========= Liabilities and Shareholders' Equity ------------------------------------------------------------------------------- Current liabilities: Accounts payable $ 23,195 $ 11,404 $ 58,375 $ (38,313) $ 54,661 Accrued liabilities 7,254 3,028 5,879 (5,268) 10,893 -------- -------- -------- ----------- --------- Total current liabilities 30,449 14,432 64,254 (43,581) 65,554 Long-term debt 315,806 137,937 127,553 (250,989) 330,307 Other long-term liabilities and deferred credits 115,149 31,266 62,079 (125,264) 83,230 Shareholders' equity: Common stock 280 1 58,941 (58,942) 280 Additional paid-in capital 305,901 324,715 545,069 (869,784) 305,901 Retained earnings 114,996 26,452 68,967 (95,419) 114,996 Accumulated other comprehensive income 4,149 - - - 4,149 Treasury stock, at cost (29,579) - - - (29,579) -------- --------- --------- ----------- -------- Total shareholders' equity 395,747 351,168 672,977 (1,024,145) 395,747 -------- --------- --------- ----------- -------- Total liabil- ities and shareholders' equity $857,151 $ 534,803 $ 926,863 $(1,443,979) $874,838 ======== ========= ========= =========== ========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS Three months ended September 30, 2000 -------------------------------------------------------------------------------- Parent Guarantor Non-Guarantor (In thousands) Company Subsidiaries Subsidiaries Eliminations Consolidated -------------------------------------------------------------------------------- Cash flows from operating activities: Net (loss) income $(12,246) $ (8,606) $ 4,293 $ 4,313 $(12,246) Reconciliation of net (loss) income to net cash (used in) provided by operating activities: Net change in operating assets and liabilities (2,949) 5,264 19,372 (4,046) 17,641 Depreciation, depletion and amortization 979 3,254 7,805 - 12,038 Equity earnings in unconsolidated affiliates 5,986 (3,045) (2,461) (3,203) (2,723) Deferred income taxes and other (7,502) 850 (715) 2,936 (4,431) ------- -------- -------- -------- -------- Net cash (used in) provided by operating activities (15,732) (2,283) 28,294 - 10,279 ------- -------- -------- -------- -------- Cash flows from investing activities: Purchase of property, plant and equipment (5) (1,381) (3,109) - (4,495) Other 2,315 - 343 - 2,658 ------- -------- -------- --------- -------- Net cash provided by (used in) investing activities 2,310 (1,381) (2,766) - (1,837) ------- -------- -------- --------- -------- Cash flows from financing activities: Debt proceeds 88,521 - - - 88,521 Debt payments (96,328) - - - (96,328) Cash dividend paid (784) - - - (784) Net change in affiliate notes 21,884 3,664 (25,548) - - ------- ------- -------- --------- --------- Net cash provided by (used in) financing activities 13,293 3,664 (25,548) - (8,591) ------- ------- -------- --------- --------- Net decrease in cash and cash equivalents (129) - (20) - (149) Cash and cash equivalents - beginning of period 2,085 17 88 - 2,190 ------- -------- -------- --------- -------- Cash and cash equivalents - end of period $ 1,956 $ 17 $ 68 $ - $ 2,041 ======= ======== ======== ========= ========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS Three months ended September 30, 1999 ------------------------------------------------------------------------------- Parent Guarantor Non-Guarantor (In thousands) Company Subsidiaries Subsidiaries Eliminations Consolidated ------------------------------------------------------------------------------- Cash flows from operating activities: Net loss $ (5,552) $ (8,009) $ (3,001) $ 11,010 $ (5,552) Reconciliation of net loss to net cash (used in) provided by operating activities: Net change in operating assets and liabil- ities (6,057) (7,280) (46,482) 43,249 (16,570) Depreciation, depletion and amortization 751 3,025 7,685 188 11,649 Equity earnings in unconsoli- dated affiliate 4,744 3,786 (6,234) (8,192) (5,896) Deferred income taxes and other (13,379) 8,937 7,851 (1,646) 1,763 ------- ------- -------- --------- -------- Net cash (used in) provided by operating activities (19,493) 459 (40,181) 44,609 (14,606) ------- ------- -------- --------- -------- Cash flows from investing activities: Purchase of property, plant and equipment (391) (616) (3,597) - (4,604) Other - - 4,800 - 4,800 ------- ------- -------- --------- -------- Net cash (used in) provided by investing activities (391) (616) 1,203 - 196 ------- ------- -------- --------- -------- Cash flows from financing activities: Debt payments (91,800) - - - (91,800) Debt proceeds 108,900 - - - 108,900 Cash dividend paid (2,614) - - - (2,614) Net change in affiliate notes 5,797 147 38,665 (44,609) - ------- ------- -------- ---------- -------- Net cash provided by financing activities 20,283 147 38,665 (44,609) 14,486 ------- ------- -------- ---------- -------- Net increase (decrease) in cash and cash equivalents 399 (10) (313) - 76 Cash and cash equivalents - beginning of period 244 21 1,383 - 1,648 ------- ------- -------- ---------- -------- Cash and cash equivalents - end of period $ 643 $ 11 $ 1,070 $ - $ 1,724 ======= ======= ======== ========== ========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Our operations are organized into three strategic business units: nitrogen, phosphate and potash. Our nitrogen business unit produces nitrogen products for distribution to fertilizer dealers and distributors and industrial users located primarily in the southern region of the United States. Our phosphate business unit produces diammonium phosphate fertilizer (commonly referred to as "DAP") and exports the majority of this production through the Phosphate Chemicals Export Association, Inc., a Webb-Pomerene corporation known as "PhosChem." Our potash business unit mines and produces agricultural and industrial potash products for sale to farmers, fertilizer dealers and distributors, and industrial users for use primarily in the southern and western regions of the United States. The following is management's discussion and analysis of the financial condition and results of operations, which should be read in conjunction with our audited financial statements and related notes for the fiscal year ended June 30, 2000. Consistent with the historical nature of our business, the usage of fertilizer in our trade territory is highly seasonal, and our quarterly results reflect the fact that significantly more fertilizer is sold during the last four months of our fiscal year (March through June). Since interim period operating results reflect the seasonal nature of our business, they may not necessarily be indicative of results expected for the full fiscal year. In addition, quarterly results can vary significantly from year to year due to a number of factors as detailed under "Forward Looking Statements" in this report. We incur substantial expenditures for fixed costs and inventory throughout the year. For the quarter ended September 30, 2000, we incurred a net loss of $12.2 million (or $0.47 per basic and diluted share) compared to a net loss of $5.6 million (or $0.21 per basic and diluted share) for the same quarter during the prior year. Net sales increased to $120.1 million for the quarter ended September 30, 2000, from $97.0 million for the quarter ended September 30, 1999. We incurred an operating loss of $14.7 million for the quarter ended September 30, 2000, compared to an operating loss of $7.6 million for the quarter ended September 30, 1999. Earnings before interest, taxes, depreciation and amortization ("EBITDA") for the quarter ended September 30, 2000, were negative $1.2 million compared to positive $4.7 million for the quarter ended September 30, 1999. During the prior year quarter, we received a one-time income tax benefit in the amount of $2.0 million resulting from settlement agreements with the Internal Revenue Service for the fiscal years 1994, 1995 and 1996. In addition, during the prior year quarter, we recorded a $3.5 million business interruption claim at our Trinidad ammonia plant for downtime that occurred in March and April of 1999. NITROGEN The operating performance of our nitrogen business unit for the quarter ended September 30, 2000, was significantly impacted by a 64% increase in the average price of natural gas at our domestic production facilities compared to the prior year quarter ended September 30, 1999. Natural gas is the primary raw material in the production of ammonia, which is our base nitrogen product used in the production of our other nitrogen products (urea, ammonium nitrate, nitrogen solutions and nitric acid). High natural gas prices caused industry- wide production curtailments during calendar 2000, which, in turn, have tightened the availability of world supplies. As a result of improved global fundamentals and production curtailments, our average sales prices increased 60% in the current year quarter as compared to the prior year quarter. During the quarter ended September 30, 2000, our nitrogen costs per ton increased 56% as compared to the prior year quarter as a result of high natural gas prices and higher maintenance costs associated with scheduled maintenance shutdowns at our nitrogen facilities in Yazoo City, Mississippi, and Donaldsonville, Louisiana. We also had decreased earnings in the current year quarter at our joint venture ammonia plant in Trinidad as a result of recording in the prior year quarter a $3.5 million business interruption claim for downtime that occurred in March and April of 1999. During the current year quarter, other operating expenses included idle plant costs at our nitrogen facilities at Yazoo City, Mississippi, and Donaldsonville, Louisiana, of approximately $3.3 million. Portions of our ammonia and nitric acid production capacities were idled for various periods during the current year quarter primarily due to the unfavorable relationship between product prices and natural gas prices as well as miscellaneous mechanical problems. During the prior year quarter, idle plant costs at our Donaldsonville, Louisiana, facility were approximately $2.5 million due to our No. 2 ammonia plant being idled in August and September of 1999. On October 13, 2000, the Committee for Fair Ammonium Nitrate Trade ("COFANT"), a coalition of U.S. producers of fertilizer-grade ammonium nitrate that includes us, filed an antidumping petition under the U.S. unfair trade laws contending that imports of Ukrainian ammonium nitrate injured the U.S. ammonium nitrate industry due to large amounts of Ukrainian product being sold in the United States at unfairly low prices. This action is similar to the successful antidumping proceeding that COFANT initiated against Russia during the prior fiscal year, which significantly decreased imports of unfairly low priced Russian ammonium nitrate. Since July 1, 1999, excluding the acquisition of the Faustina urea facility, we have realized a 14% reduction in the number of employees in our nitrogen operations and headquarters staff through attrition and, most recently, an early retirement program and a reduction in force. PHOSPHATE Our phosphate business unit experienced an 18% decrease in sales during the quarter ended September 30, 2000, as compared to the quarter ended September 30, 1999. This decrease included a 16% reduction in sales prices and a 3% reduction in sales volumes. The decline in sales prices was caused by additional supply in the market in the current year quarter from new plants in India and Australia. Our DAP cost per ton decreased 4%, primarily the result of lower raw material costs for phosphate rock, mostly offset by higher costs for ammonia. POTASH During the quarter ended September 30, 2000, our potash business unit did not experience any significant changes in sales prices or volumes. Our potash costs per ton increased 15% in the current year quarter as compared to the prior year quarter. This increase was primarily the result of higher per-ton beginning inventory values and high per-ton production costs during the first two months of the current year quarter. In September of the current year quarter, improved ore grade at the West mine resulted in lower per-ton production costs, offsetting some of the high cost experienced in the first two months. Higher natural gas prices paid during the current year quarter as compared to the prior year quarter, as well as increased turnaround costs expensed during the current year quarter, were offset by lower spending levels in other cost areas. OUTLOOK We believe that our nitrogen segment will continue to benefit from the improved supply/demand outlook resulting from industry-wide production curtailments and permanent shutdowns. However, to maximize results in the current environment, we continue to determine operating levels for our plants based on the relationship between nitrogen product prices and natural gas prices and our customers' requirements. As we move into the winter season, the relationship between nitrogen product prices and natural gas prices will continue to be a major focus. Industry inventory levels for nitrogen solutions and ammonium nitrate, already lower compared to the prior year quarter, combined with industry production levels through the winter, will play a role in determining product prices as we enter the spring season. Due to high natural gas prices and the seasonal nature of our business, the months leading up to the spring season will continue to be challenging. Additional increases in natural gas prices would have a material adverse impact on our performance if product prices do not experience corresponding increases. As a result of domestic production curtailments and improving market fundamentals, we have seen some improvement in DAP sales prices since June 30, 2000; however, we anticipate that DAP sales prices will continue in the near-term to adversely affect our phosphate segment's financial results. Finally, we believe domestic potash demand will remain firm in the near-term; however, the performance of our potash segment will depend on maintaining improved ore grades. Other variables can affect our results of operations as stated elsewhere in the discussion under the headings titled "Results of Operations" and "Forward Looking Statements." RESULTS OF OPERATIONS Following are summaries of our sales results by product categories: Three months ended September 30, --------------------- 2000 1999 Net Sales (in thousands): -------- -------- Nitrogen $ 71,180 $ 42,022 DAP 29,380 35,755 Potash 18,905 18,939 Other 588 282 -------- -------- Net Sales $120,053 $ 96,998 ======== ======== Three months ended September 30, --------------------- 2000 1999 Tons Sold (in thousands): -------- ------ Nitrogen: Ammonia 215 172 Ammonium nitrate 104 84 Urea 143 134 Nitrogen solutions 46 88 Nitric acid 13 14 ----- ----- Total Nitrogen 521 492 DAP 222 229 Potash 215 217 Three months ended September 30, ---------------------- 2000 1999 Average Sales Price Per Ton: -------- -------- Nitrogen $ 137 $ 85 DAP $ 132 $ 156 Potash $ 88 $ 87
NET SALES. Our net sales increased 24% to $120.1 million for the quarter ended September 30, 2000, from $97.0 million for the quarter ended September 30, 1999. This increase is primarily the result of higher nitrogen sales prices and sales volumes partially offset by lower DAP sales prices. During the current year quarter, nitrogen sales increased 69% as compared to the prior year quarter. This increase was the result of a 60% increase in nitrogen sales prices and a 6% increase in nitrogen sales volumes. Our ammonia sales prices increased 60% and our ammonia sales volumes increased 25% in the current year quarter as compared to the prior year quarter. Industry production curtailments due to high natural gas prices have reduced world supplies, resulting in higher prices. During the current year quarter, we curtailed production at both our Yazoo City, Mississippi and Donaldsonville, Louisiana ammonia facilities. As a result of these curtailments, our ammonia production was reduced, causing us to purchase ammonia from third parties to meet the increased demand during the quarter. Our ammonium nitrate sales prices increased 18% and our sales volumes increased 24% during the current year quarter as compared to the prior year quarter. During the prior year quarter, ammonium nitrate sales prices and volumes were negatively affected by low-priced Russian imports that have been alleviated by an antidumping settlement. Additional improvement in pricing in the current year quarter was prevented by the presence of low priced imports from Ukraine which replaced Russian material. Urea sales prices increased 65% and sales volumes increased 7% during the current year quarter as compared to the prior year quarter. Sales prices increased as a result of improved market fundamentals. During the prior year quarter, urea sales prices were near their low point in the cycle. Sales volumes increased primarily as a result of product available from our Faustina, Louisiana, granular urea plant that we purchased in April 2000. Nitrogen solutions sales prices increased 90% and sales volumes decreased 48% during the current year quarter as compared to the prior year quarter. Sales prices increased as a result of the tight supply/demand balance caused by reduced industry inventory levels, concerns about available supply, and strong demand. Sales volumes decreased as a result of lower production at our Yazoo City facility caused by scheduled maintenance shutdowns of our ammonia and urea synthesis plants. In addition, low water levels in the Yazoo River limited our ability to ship by barge, further reducing sales volumes for the quarter. During the quarter ended September 30, 2000, our DAP sales decreased 18% as compared to the prior year quarter due to a 16% reduction in sales prices and a 3% reduction in sales volumes. The decline in sales prices is attributable to additional supply in the market from new plants in India and Australia. Our potash sales prices and sales volumes did not change significantly during the quarter ended September 30, 2000, as compared to the prior year quarter. COST OF PRODUCTS SOLD. Our cost of products sold increased to $122.6 million for the quarter ended September 30, 2000, from $93.4 million for the quarter ended September 30, 1999. As a percentage of net sales, cost of products sold increased to 102% for the quarter ended September 30, 2000, from 96% for the quarter ended September 30, 1999. This increase was primarily the result of higher nitrogen and potash costs per ton and lower DAP sales prices, partially offset by higher nitrogen sales prices and lower DAP costs per ton. Our nitrogen costs per ton increased 56% in the current year quarter as compared to the prior year quarter, primarily as a result of higher natural gas costs at our domestic production facilities. The average price of natural gas increased approximately 64% during the current year quarter as compared to the prior year quarter. We also incurred higher maintenance costs in the current year associated with scheduled maintenance shutdowns at our nitrogen facilities in Yazoo City, Mississippi, and Donaldsonville, Louisiana. In addition, we had decreased equity earnings in the current year quarter at our joint venture ammonia plant in Trinidad, Farmland MissChem Limited ("Farmland MissChem"), as a result of recording in the prior year a $3.5 million business interruption claim for downtime that occurred in March and April of 1999. Our portion of the earnings from Farmland MissChem was $2.5 million in the current year quarter, as compared to $2.7 million, without the business interruption claim, in the prior year quarter. During the current year quarter, our DAP costs per ton decreased 4% as compared to the prior year quarter, primarily the result of lower raw material costs for phosphate rock mostly offset by higher costs for ammonia. Phosphate rock costs decreased due to the pricing formula in our phosphate rock supply contract that is based on the phosphate rock costs incurred by certain other domestic phosphate producers and the financial performance of our phosphate operations. Our potash costs per ton increased 15% in the current year quarter as compared to the prior year quarter. This increase was primarily the result of higher per-ton beginning inventory values and high per-ton production costs during the first two months of the current year quarter. In September of the current year quarter, improved ore grade at the West mine resulted in lower per-ton production costs offsetting some of the high cost experienced in the first two months. Higher natural gas prices paid during the current year quarter as compared to the prior year quarter, as well as increased turnaround costs expensed during the current year quarter, were offset by lower spending levels in other cost areas. SELLING, GENERAL AND ADMINISTRATIVE. Our selling, general and administrative expenses increased to $8.8 million at September 30, 2000, from $8.6 million at September 30, 1999. This increase was primarily the result of incurring approximately $787,000 in costs in the current year quarter related to an early retirement program completed in September 2000. These higher costs were partially offset by lower labor costs in the current year quarter due to the effects of reductions in workforce. As a percentage of net sales, selling, general and administrative expenses decreased to 7% at September 30, 2000, from 9% at September 30, 1999. Excluding the early retirement costs, our selling, general and administrative expenses decreased approximately 7% in the current year quarter as compared to the prior year quarter. OTHER OPERATING EXPENSES. Our other operating expenses increased to $3.4 million at September 30, 2000, from $2.5 million at September 30, 1999, as a result of higher idle plant costs at our nitrogen facilities in the current year quarter. Portions of our ammonia and nitric acid production capacities were idled for various periods during the current year quarter primarily due to the unfavorable relationship between product prices and natural gas prices as well as miscellaneous mechanical problems. During the prior year quarter, our Donaldsonville, Louisiana, facility had idle plant costs due to our No. 2 ammonia plant being idled in August and September of 1999. We also idled granular urea production at our Faustina, Louisiana, facility for the majority of the current year quarter due to IMC-Agrico's ammonia plant being down. Since the Faustina facility requires carbon dioxide from IMC-Agrico's ammonia process to produce urea, we are unable to operate the Faustina facility when there is no ammonia production at the IMC-Agrico facility. OPERATING LOSS. As a result of the above factors, we incurred an operating loss of $14.7 million for the quarter ended September 30, 2000, as compared to operating loss of $7.6 million for the quarter ended September 30, 1999. INTEREST. For the quarter ended September 30, 2000, our net interest expense increased to $7.2 million from $6.0 million for the quarter ended September 30, 1999. This increase was primarily the result of higher average interest rates during the current year quarter. OTHER INCOME. For the quarter ended September 30, 2000, other income increased to $1.5 million from $635,000 for the quarter ended September 30, 1999. This increase was primarily the result of gains on the sale of assets during the current year quarter. INCOME TAX BENEFIT. For the quarter ended September 30, 2000, our income tax benefit was $8.2 million, as compared to an income tax benefit of $7.4 million for the quarter ended September 30, 1999. These income tax benefits are the result of our net losses. For the three months ended September 30, 1999, we also recorded a one-time benefit in the amount of $2.0 million related to settlement agreements made with the Internal Revenue Service for fiscal years 1994, 1995 and 1996. NET LOSS. As a result of the foregoing, we incurred a net loss of $12.2 million for the quarter ended September 30, 2000, as compared to a net loss of $5.6 million for the quarter ended September 30, 1999. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2000, we had cash and cash equivalents of $2.0 million, compared to $2.2 million at June 30, 2000, a decrease of approximately $200,000. OPERATING ACTIVITIES. For the three months ended September 30, 2000, our net cash provided by operating activities was $10.3 million compared to net cash used in operating activities of $14.6 million for the three months ended September 30, 1999. Current year cash provided by operating activities includes a $22.0 million reduction in receivables as a result of collecting, in the quarter ended September 30, 2000, receivables related to our heavy spring season. INVESTING ACTIVITIES. Our net cash used in investing activities was $1.8 million for the three months ended September 30, 2000, compared to net cash provided by investing activities of $196,000 for the three months ended September 30, 1999. During the current year three-month period, our capital expenditures were $4.5 million compared to $4.6 million during the prior year three-month period. Our current year expenditures were for normal improvements and modifications to our facilities. FINANCING ACTIVITIES. Our net cash used in financing activities was $8.6 million for the three months ended September 30, 2000, compared to net cash provided by financing activities of $14.5 million for the three months ended September 30, 1999. During the current year three-month period, the amounts used in financing activities included $96.3 million in debt payments and $784,000 in cash dividends. These payments were partially offset by debt proceeds of $88.5 million. During the prior year three-month period, the amounts provided by financing activities included $108.9 million in debt proceeds partially offset by $91.8 million in debt payments and $2.6 million in cash dividends. In August 1997, we issued $14.5 million in industrial revenue bonds, a portion of which were tax-exempt, to finance the development of our new phosphogypsum disposal facility at our Pascagoula, Mississippi, DAP manufacturing plant. On April 1, 1998, we issued $14.5 million in fully tax- exempt industrial revenue bonds, the proceeds of which were used to redeem the initial industrial revenue bonds issued in August 1997. The bonds issued on April 1, 1998, mature on March 1, 2022, and carry a 5.8% fixed rate. The bonds may be redeemed at our option at a premium from March 1, 2008, to February 28, 2010, and may be redeemed at face value at any time after February 28, 2010, through the maturity date. On November 25, 1997, we issued $200.0 million of 7.25% Senior Notes (the "Notes") due November 15, 2017. The holders may elect to have the Notes repaid on November 15, 2007. The Notes were issued under a $300.0 million shelf registration statement filed with the Securities and Exchange Commission in November 1997. We have a secured revolving credit facility (the "Facility") with Harris Trust and Savings Bank and a syndicate of other commercial banks totaling $200.0 million. This Facility matures on November 25, 2002, and bears interest at rates related to the Prime Rate, the London Interbank Offered Rate or Federal Funds Rate. At September 30, 2000, we had a letter of credit outstanding in the amount of $7.3 million that lowers our availability under the Facility, and we had borrowings outstanding in the amount of $108.4 million. We had $72.5 million available under the Facility at September 30, 2000. The facility contains covenants that prohibit us from exceeding a threshold ratio of debt to total capital and requires us to maintain a minimum level of tangible net worth. In addition, we have covenants that require minimum levels of interest coverage. Amounts outstanding under the Facility are subject to a requirement that the total amount outstanding under the Facility not exceed a certain asset value calculation. Quarterly cash dividends are permitted based on a certain ratio of earnings before interest, taxes, depreciation, and amortization to interest. However, our Board of Directors did not authorize a dividend for our first quarter of fiscal 2001. The facility also prohibits the repurchase of our outstanding shares, and establishes maximum levels of capital expenditures by year. The Facility lenders have security interests in substantially all of our assets, as allowed by the Indenture governing the Senior Notes. Based on our natural gas prices as of the date of this filing, we believe that our existing cash, cash generated from operations, available credit facilities, and cash realized from property held for sale will be sufficient to satisfy our financing requirements for operations and capital projects through fiscal 2001. There has been unprecedented volatility in natural gas prices in recent months with our costs increasing 64% in the first quarter of the current fiscal year over the prior fiscal year first quarter. Additional increases in natural gas prices could have a material adverse impact on our liquidity. We estimate our capital expenditure requirements for the remainder of fiscal 2001 to be approximately $18.0 million, which includes normal improvements and modifications to our facilities that will be funded with cash generated from operations and borrowings under our credit facilities. FORWARD-LOOKING STATEMENTS Except for the historical statements and discussion contained herein, statements set forth in this report constitute "forward-looking statements." Since these forward-looking statements rely on a number of assumptions concerning future events, risks and other uncertainties that are beyond our ability to control, readers are cautioned that actual results may differ materially from such forward-looking statements. Future events, risks and uncertainties that could cause a material difference in such results include, but are not limited to, (i) changes in matters which affect the global supply and demand of fertilizer products, (ii) the volatility of the natural gas market, (iii) a variety of conditions in the agricultural industry such as grain prices, planted acreage, projected grain stocks, U.S. government policies, weather, and changes in agricultural production methods, (iv) possible unscheduled plant outages and other operating difficulties, (v) price competition and capacity expansions and reductions from both domestic and international competitors, (vi) foreign government agricultural policies (in particular, the policies of the governments of India and China regarding fertilizer imports), (vii) the relative unpredictability of international and local economic conditions, (viii) the relative value of the U.S. dollar, (ix) environmental regulations, and (x) other important factors affecting the fertilizer industry and us as detailed under "Outlook and Uncertainties" and elsewhere in our most recent Annual Report on Form 10-K which is on file with the Securities and Exchange Commission. Item 3. Quantitative and Qualitative Disclosure about Market Risk. We are exposed to market risk, including changes in natural gas prices and interest rates. To manage our natural gas price risks, we enter into derivative transactions. We do not hold or issue derivative financial instruments for trading purposes. We maintain formal policies with respect to entering into and monitoring derivative transactions. Our derivative transactions are intended to hedge our future natural gas costs. The volume of natural gas hedged varies from time to time based on management's judgment of market conditions, particularly natural gas prices and product prices. For more information about how we manage specific risk exposures, see Note 12 - Hedging Activities, and Note 5 - Credit Agreements and Long-Term Debt, in our Notes to Consolidated Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2000. We use natural gas futures contracts to reduce the impact of changes in natural gas prices. We prepared a sensitivity analysis to estimate our market risk exposure arising from these instruments. The fair value of open contracts was calculated by valuing each position using September 30, 2000 quoted market prices. Market risk is the potential loss in fair value as a result of a 10% adverse change in market prices. We estimate that such an adverse change in prices would have reduced the fair value of open contracts by $2.5 million at September 30, 2000. The estimated fair value for our Senior Notes was computed using current market quotes for securities similar to our Senior Notes. The estimated fair value for our industrial revenue bonds was computed using the effective yield on state and local bonds. At September 30, 2000, we believe that the fair value of our Senior Notes had decreased slightly from June 30, 2000, due to market quotes for similar securities. At September 30, 2000, we believe the fair value of our industrial revenue bonds had not significantly changed from June 30, 2000. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits filed as part of this report are listed below. SEC Exhibit Reference No. Description Exhibit Index to Form 10-Q 27 Financial Data Schedule. (b) No reports on Form 8-K have been filed during the quarter for which this report is filed. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MISSISSIPPI CHEMICAL CORPORATION Date: November 8, 2000 /s/ Timothy A. Dawson ---------------- -------------------------------- Timothy A. Dawson Senior Vice President and Chief Financial Officer Date: November 8, 2000 /s/ Rosalyn B. Glascoe ---------------- -------------------------------- Rosalyn B. Glascoe Corporate Secretary